BB to banks: Keep provisions against losses on investments in stocks

The Bangladesh Bank has asked all scheduled banks to keep provisions against losses on investments in the shares of listed and non-listed companies, bonds, debentures, and mutual funds of listed firms. It issued a notice in this regard on Wednesday.

According to the notice, for investments in listed companies, if the latest market price is lower than the purchase price in case of securities other than government securities, a provision equal to the difference between the costing price and the latest market price should be kept.

This difference in price should be recognised as an impairment loss on the investment. This condition applies to listed shares, bonds, debentures, mutual funds, or any other funds, said the notification. The order will be effective on June 30 this year, according to the central bank.

Also as per the notification, in case of investments in non-listed equity shares, if the total value of the company decreases, a provision equal to the reduced value should be kept by the bank at a rate proportionate to the investment in the company.

A provision equal to the investment should be reserved if the investee company ceases to exist, ceases operations, or no visible operations are observed, it said.

The notification also said in case of non-convertible cumulative preference shares, a provision of 25 per cent on the original amount at the end of the first year should be kept if the stipulated interest, profit, or cash dividend due to the bank is not received as per the agreement.

There will be an additional 25 per cent provision for the second year and a 100 per cent provision for three years of unpaid dividends.

According to the central bank, in case of open-ended mutual funds, if the surrender price of the fund unit is less than the average purchase price, a provision equal to the difference between the average purchase price and the surrender price should be kept. Banks have to reserve provisions on a quarterly basis according to these instructions and submit the information to the Bangladesh Bank, the notification added.